Alien Tort Statute (ATS)/Political Question Doctrine/Foreign Sovereign Immunity Act (FSIA)/ Act of State Doctrine

District Court Dismisses ATS Claim Where Alleged Conduct in US was not Directly Linked to Injuries Claimed in Other Countries

Al Shimari v. CACI Premier Technology, Inc.,  US Court of Appeals for the Fourth Circuit, October 21, 2016

Former detainees of the Abu Ghraib prison in Iraq brought claims under the Alien Tort Statute against a private company that conducted interrogations under contract from the US military.  In this opinion, the Court of Appeals concluded that the “political question” doctrine, which makes certain discretionary decisions of the Executive Branch “nonjusticiable,” does not preclude a court from hearing claims that a contractor committed acts that were unlawful at the time of their commission.  The Court further held, however, that the contractor’s alleged acts “are shielded from judicial review" under the political question doctrine if they were not unlawful when committed and occurred under the actual control of the military or involved sensitive military judgments.  The case was sent back to the trial court for that question to be answered.

Court of Appeals Finds “Takings” Exception to FSIA Inapplicable because Actions of Nonparty Instrumentalities of Government Could not be Imputed to the Defendant

Arch Trading Corp. v. Republic of Ecuador, US Court of Appeals for the Second Circuit, October 14, 2016

Five entities incorporated in the British Virgin Islands sued two instrumentalities of the Republic of Ecuador for more than $1 billion in damages arising out of an alleged nationalization of 133 companies owned by the plaintiffs.  The District Court dismissed the complaint pursuant to the FSIA and the plaintiffs appealed, asserting that the case fell within the statute’s “takings” or “expropriation” exceptions.

The parties agreed that the defendants were a “foreign state” presumptively entitled to sovereign immunity under FSIA.  The “takings” exception applies, among other things, to “rights in property taken in violation of international law” where either the taken property or “any property exchanged for such property” is (i) “owned or operated by an agency or instrumentality of the foreign state” and (ii) “that agency or instrumentality is engaged in a commercial activity in the United States[.]”  Thus, application of the FSIA turned on whether the defendants were “engaged in a commercial activity” in the US.

The Court of Appeals in New York held that the defendants did not fall within the takings exception, as the plaintiffs did not contend that the defendants engaged in commercial activity in the US.  In addition, the Court of Appeals declined to impute the US activities of nonparty Ecuadorean instrumentalities’ to the defendants themselves. The Court of Appeals found that international comity required that the separateness of different legal entities be presumptively respected, and concluded that the plaintiffs failed to demonstrate that the defendants’ alleged exercise of significant and repeated control over the other entities’ day-to-day operations warranted a contrary result.

District Court finds Korean Agency’s Decision to Enter into Contract with “Best Efforts” Clause to fall within FSIA “Commercial Activity” Exception

BAE Systems Technology Solution & Services, Inc. v. Republic of Korea’s Defense Acquisition Program Administration (DAPA), US District Court for the District of Maryland, October 24, 2016

BAE was the lead contractor under an agreement between the US Government and DAPA, a Korean governmental agency, to upgrade certain aspects of the Korean military.  Disputes arose, and BAE filed suit for a declaration that it was not liable under a contractual guarantee and to prohibit DAPA from pursuing litigation in Korea alleging a breach of contract.

The Court first considered whether the case fell within the “commercial activity” exception to the FSIA, which otherwise broadly immunizes foreign sovereigns against suits in US courts.  As a technical matter, DAPA could be deemed to have waived reliance on sovereign immunity because it failed to raise that argument as an “affirmative defense” in its answer.  But the Court, noting that waivers of sovereign immunity are to be construed narrowly, addressed the potential FSIA defense nonetheless.  On the merits, the Court observed that the relevant question in determining whether the “commercial exception” applied was whether the "core" of the suit concerned actions by a sovereign (DAPA) that are commercial in nature.  The claim here involved BAE’s alleged breach of an agreement to use its “best efforts” to prevent a substantial increase in the cost of upgrades to the Korean Air Force.  The Court concluded that “[e]ntering into a contract that includes a best efforts clause and is a prelude to a military sales contract is itself commercial activity.”  The Court also determined that the jurisdictional requirement that the commercial activity occur “in the United States” was satisfied because the claim turned on a US company’s discharge of its alleged contractual obligations to affect US Government decisions and a claim that BAE pay US dollars to DAPA.  For these reasons, sovereign immunity was found not to require dismissal of the claims.

Finally, the Court addressed the Act of State Doctrine, which prohibits courts from reviewing the sovereign acts of other countries undertaken within their own borders.  While South Korea had issued a “notice of confiscation” of a BAE performance bond, no confiscation had occurred that would be the subject of suit.  And because the Court had only entered a preliminary injunction against maintenance of South Korea’s litigation in South Korea so that the merits of the contract claim could be addressed, it did not consider that its order had interfered with a sovereign decision to pursue litigation locally.

District Court Dismisses Torture Claims under the Foreign Official Immunity Doctrine

Dogan v. Barak, US District Court for the Central District of California, October 13, 2016

US citizen Ahmet Dogan, individually and on behalf of his son, sued former Israeli Prime Minister Ehud Barak for damages under the ATS, TVPA, and the Anti-Torture Act.  The suit alleged that the son’s death while aboard a flotilla intercepted by the Israeli military constituted torture and an extra-judicial killing in violation of federal and international law, for which Barak was personally responsible.  Barak allegedly planned the operation to intercept the flotilla, directed the operation in real time, and personally authorized the Israeli Defense Forces to board and take over the flotilla.

As relevant here, Barak moved to dismiss based upon the foreign official immunity doctrine, arguing he could not be sued in federal court in the US for public acts performed on behalf of a sovereign nation.  The District Court in Los Angeles agreed.

The Court began by explaining that US common law provides that certain individuals acting on behalf of friendly foreign sovereigns should not be subject to the jurisdiction of another nation, on the rationale that sovereign states should respect each other’s independence and address potential disputes through diplomatic negotiations rather than judicial proceedings.  The law provides that if the US State Department makes a “suggestion of immunity” in response to a request by another country, the Court should defer to it.  If no such suggestion is made, the Court may conduct an independent inquiry to decide for itself whether the requisites for immunity exist.  Here, both the State Department’s suggestion of immunity and the Court’s independent inquiry counseled dismissal of Dogan’s claims.

With respect to the first step, the US recommended immunity for Barak: (i) because Dogan’s suit challenges Barak’s exercise of power as an official of the Israeli government, (ii) to avoid embarrassing the Executive Branch through antagonistic jurisdiction, and (iii) to allow the political branches discretion to resolve the issue through diplomacy.  In response, Dogan first argued that deference to the State Department’s Suggestion of Immunity was inappropriate because absolute deference to the executive in foreign relations violates the separation of powers between the executive and judicial branches.  The Court’s principal response was that judicial deference to such Suggestions is a fully independent and voluntary decision by the judiciary to relinquish control to the branch it believes is best positioned to resolve these issues—the executive branch.

As an alternative ground for its decision, the Court determined independently that Barak’s acts were indisputably official public acts entitling him to immunity.  The Court was also convinced that the issue should be handled diplomatically, given that it unfolded amidst precarious US-Middle East relations and that diplomatic responses to the event in fact ensued.

The Court concluded by addressing Dogan’s arguments that foreign official immunity does not apply to those who commit torture or extra-judicial killings, as he alleged was the case with Barak.  The Court found no basis to carve out such an exception to the doctrine, and in the same vein concluded that the TVPA did not abrogate the common law foreign official immunity doctrine.

Court of Appeals Finds Indirect Ownership and Activities of Related National Entities do not Satisfy “Commercial Activity” Exception to FSIA

Janvey v. Libyan Investment Authority, U.S. Court of Appeals for the Fifth Circuit, October 26, 2016

Ralph Janvey, the court-appointed receiver for the assets remaining in a US-based Ponzi scheme, brought claims against the Libyan Investment Authority (LIA) and the Libyan Foreign Investment Company (LFICO) to recover proceeds of certificates of deposit they received as early investors in the scheme.  These defendants moved to dismiss the suit, arguing that the FSIA prevented the district court from exercising jurisdiction over them.  LFICO’s only shareholder is LIA, and LIA’s only shareholder is Libya.  Janvey opposed the dismissal on the ground that the “commercial activity” exception to FSIA immunity applied.

The FSIA provides “the sole basis for obtaining jurisdiction over a foreign state” in federal and State courts.  It provides both the underlying immunity, which applies to any “foreign state,” and the only exceptions thereto.  Where an exception applies, the FSIA specifies the only basis for personal and subject matter jurisdiction.  A defendant has the initial burden of showing the applicability of the FSIA; the burden then shifts to the plaintiff to prove that the claim falls within one of the enumerated exceptions.

The Court of Appeals observed that the FSIA only applies to “foreign states” and their “agencies or instrumentalities,” and explained that an “agency or instrumentality” of a foreign state is any separate entity, “corporate or otherwise,” that is either (i) majority owned by a foreign state, or (ii) an “organ” of a foreign state.  Notably, as to the first prong, ownership, not control, is the relevant inquiry.  LIA, which is majority owned by Libya, is thus an agency or instrumentality of that country for purposes of the FSIA.  LFICO, which is owned by LIA, is not, as only direct ownership by a foreign state satisfies the statutory requirement.  But LFICO would still be within the scope of the FSIA if it were an “organ” of Libya, and the Court of Appeals said that term does not have a bright-line definition.  Rather, it requires consideration of several factors: “(1) whether the foreign state created the entity for a national purpose; (2) whether the foreign state actively supervises the entity; (3) whether the foreign state requires the hiring of public employees and pays their salaries; (4) whether the entity holds exclusive rights to some right in the [foreign] country; and (5) how the entity is treated under foreign state law.”  Like corporate subsidiaries, duly created agencies or instrumentalities of a foreign state are presumed to have independent status and not be “organs” of the state.  To overcome that presumption, Janvey had to prove that the entities were “alter egos” of one another.  However, because both parties had (incorrectly) agreed that LFICO was a foreign state under FSIA due to its ownership, neither party developed a record on whether it was an “organ” of Libya.  The Court of Appeals therefore sent the case back to the District Court for further findings on that issue.

The Court of Appeals then turned to the “commercial activity” exception to FSIA, which applies “in any case in which the action is based upon a commercial activity that has a jurisdictional nexus with the United States.”  In order to satisfy that jurisdictional nexus, the Court of Appeals observed that one of the following conditions must be present: (i) “a commercial activity carried on in the United States by the foreign state”; (ii) “an act performed in the United States in connection with a commercial activity of the foreign state elsewhere”; or (iii) “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”

The Court of Appeals found that none of the three clauses of the commercial activity exception applied to LFICO (which the Fifth Circuit assumed for purposes of the discussion was a foreign state).  It found that LFICO acted only pursuant to its obligations under the CDs, which were agreements between LFICO and a private bank that did not require any action to be taken within the US and did not have a direct effect in the US.

Finally, the Court of Appeals held that LIA, which took no specific actions related to the scheme, was not an agent or “alter ego” of LFICO, as to which jurisdiction might exist.  Determining whether one entity is the agent of another depends upon "whether the [parent] exercises day-to-day control over the [subsidiary].”  Meanwhile, in order to establish one entity as the “alter ego” of another, a party must show that “(1) the [parent] exercised complete control over the [subsidiary] with respect to the [acts] at issue and (2) such control was used to commit a fraud or wrong that injured the party seeking to pierce the [corporate] veil.”  The Court of Appeals found no evidence that LIA exercised any significant control over LFICO, and therefore preserved the separate status of LIA and LFICO and found the commercial activity exception inapplicable to LIA.

District Court Finds FSIA “Commercial Exception” Inapplicable where US Conduct of Non-Employee Advisor to Defendant was neither Substantial nor Commercial in Nature

Telchi v. Israel Military Industries, Ltd., US District Court for the Southern District of Florida, October 14, 2016

Telchi, a Bolivian resident, sued his former employer, an arms manufacturer wholly owned by the State of Israel, for the recovery of damages he allegedly incurred in connection with the manufacturer’s efforts to sell products to the Bolivian military.  In this opinion, the Court noted that the FSIA itself is the sole basis for determining whether the Court has jurisdiction over the sovereign defendant.  Specifically, personal jurisdiction exists where the FSIA confers upon a court jurisdiction over a dispute, and service of process has been made.

The FSIA generally establishes a sovereign’s immunity from suit in US courts but is subject to statutory exceptions.  In the case at bar, subject-matter jurisdiction was allegedly based on the FSIA’s “commercial exception,” which applies where “the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in” commercial transactions.  Telchi sued under the FSIA provision applicable to commercial activity undertaken in the US, and the activity he cited was the presence in Miami of a non-employee advisor of the manufacturer who was involved with the Bolivian contracts. 

The Court found the activities inadequate to meet the requirements of the exception.  The advisor, while in Miami, was not an employee of the manufacturer and had no authority to bind the manufacturer to any obligations or perform other “commercial” acts.  His activities were directed “through” the manufacturer’s office in Bolivia or Israel, and when Telchi and the advisor met in the US any discussion of business was incidental. 

In the course of its discussion the Court noted that the applicability of traditional Due Process requirements to the assertion of jurisdiction under the FSIA was unsettled, but that any such requirements would not be satisfied because the manufacturer was not alleged to have the minimum necessary contacts with the US.  With the “commercial exception” to the FSIA inapplicable, the case was dismissed.

Antitrust/Competition/Foreign Trade Antitrust Improvements Act (FTAIA)

District Court Permits Plaintiffs to Provide Limited Details in Complaint about Assignments of Claims on which Standing is based, but Requires Proffer on Satisfaction of FTAIA Requirements

In Re: Lithium Ion Batteries Antitrust Litigation, US District Court for the Northern District of California, October 4, 2016

Plaintiffs in this sprawling class action claim to have been injured by price-fixing among leading manufacturers of lithium batteries.  The case is based in part on assignments of claims that certain plaintiffs received from their subsidiaries and affiliates—presumably ones that purchased the batteries directly from the defendants and thus had standing to bring federal antitrust claims.  Defendant Toshiba companies moved to dismiss, arguing that the complaint was deficient because it failed to provide details about the nature of the claims allegedly possessed by the entities that assigned their rights.  The Court concluded that the plaintiffs’ mere identification of the subsidiaries and affiliates was sufficient to survive a motion to dismiss, and that details about the rights assigned could be filled in through discovery.  But it added that the FTAIA was potentially implicated by the claims, and ordered the plaintiffs to provide additional information demonstrating why the claims satisfied the statute’s requirements that the defendants’ conduct involve “import trade or commerce,” or otherwise had a "direct, substantial, and reasonably foreseeable effect" on American domestic commerce that "gives rise to a claim" under the Sherman Act.

District Court Determines Applicability of the FTAIA’s Import Exception by Category of Transaction, and Finds the FTAIA Limits State Antitrust Laws

In Re Capacitors Antitrust Litigation, US District Court for the Northern District of California, September 30, 2016

The plaintiffs in this class action lawsuit are direct and indirect purchasers of certain kinds of capacitors from almost two dozen mainly Asian manufacturers, which the complaint alleges engaged in price-fixing.  The District Court in California addressed two principal issues:  (i) the meaning of “import commerce,” as to which antitrust claims may still be brought despite the FTAIA, and (ii) the extent to which the plaintiffs’ claim was “proximately caused” by an effect on US commerce—again, as required by the FTAIA for a covered claim to be viable.  The Court addressed the issues in terms of categories of transactions:

• Capacitors billed to US customers, no matter where delivered.  These transactions reflect US “import commerce” and can support claims because they are outside the scope of the FTAIA.
• Capacitors billed to non-US purchasers but shipped directly to the US.   These transactions also reflect “import commerce” because the defendants “knew and intended” that the capacitors would be shipped to the US, and indeed in many cases were the shippers.
• Capacitors billed and delivered to non-US purchasers.  These cannot be the subject of a US claim because they affect foreign commerce only.  Nor can the plaintiffs avoid this ruling by arguing that there was a single inflated worldwide price for which the US market was critical.  Rather, to bring non-US sales into the case, the plaintiffs would have to show more directly that an injury to competition in the US “proximately caused” their overpayments in other countries—a task that the court equated with passing though the “eye of [a] needle.”
• Capacitors purchased outside the US and incorporated into finished products sold to US customers.  The Court declines to characterize the test that the parties must meet to bring a claim with respect to these transactions, but suggests that the test would be difficult to meet where (as in the case at bar) the allegedly price-fixed component represented only a very small part of the cost of the finished product.

The Court also concluded that claims under the California State antitrust statute would be limited by the FTAIA to the same extent as federal law.  It noted that State laws may also have their own unique territorial limitations that would have to be addressed later in the litigation.

District Court Finds FTAIA Requirements Satisfied for Component Product that has no Use other than as a Component, and whose Cost Constitutes a Substantial Portion of the Cost of Finished Products

In re: Cathode Ray Tube (CRT) Antitrust Litigation, US District Court for the Northern District of California, November 15, 2016

The plaintiffs in this multi-district and long-running case allege that the defendant manufacturers fixed the price of cathode ray tubes (CRTs) via meetings conducted worldwide.  CRTs have no commercial use except as components of larger finished products, including old-style tube TVs and computer screens.  The relevant chains of distribution were unusually varied:  CRT and CRT products were (i) manufactured in the US, (ii) imported and sold in the US directly by defendant manufacturers or their subsidiaries and affiliates, and (iii) manufactured outside the US and then imported and sold in the US by third parties. 

The Court began by observing that, except for claims involving US “import commerce,” the FTAIA generally precludes antitrust claims unless the actions complained of caused a “direct, substantial, and reasonably foreseeable effect” on US commerce that gives rise to an antitrust claim.  It described “import commerce” as requiring little more than an assertion that a product was sold from a non-US location to a US buyer in the US.  A particular defendant also could be liable even if it was not itself the seller of the product to a US purchaser; all the Court required was that the defendant have “negotiated to set the price of a good that was imported” into the US.  The Court also found that a plaintiff could bring a claim even if its US purchase was of a finished product incorporating a CRT, “particularly given that CRTs have no use other than as the primary component of a finished product.”

As an alternative to permitting a claim to proceed because it involved US import commerce, the Court found that the plaintiffs’ claims satisfied the FTAIA’s requirement that non-import transactions have a “direct, substantial, and reasonably foreseeable effect” on US commerce.  In so doing, it rejected the defendants’ argument that CRTs and finished products passed through so many hands and levels of distribution that no effect on US commerce could be “direct.”  The Court found that the relative messiness of the chain of distribution should be disregarded in cases, such as the one at bar, where (i) the price-fixed components were themselves sold in the US or were “substantial cost components” of finished products that were so sold, (ii) direct negotiations occurred with US companies, and (iii) the defendants understood that sales to non-US customers were destined for the US.  The Court also concluded that sales through intermediaries would “give rise to” a US antitrust claim, and in so doing specifically declined to follow the influential Motorola Mobility decision by the Court of Appeals in Chicago that found claims would not arise where sales of price-fixed products were made to non-US parties.

The Court emphasized in all of its rulings that it was not issuing findings on the merits but acting in response to the defendants’ motion for summary judgment, which had to be denied if a triable issue of material fact existed.

District Court Concludes that US Purchaser of Refrigerators from its Minority-Owned Subsidiary could not Sue for Injury Allegedly Suffered by Subsidiary that was the Victim of Price-Fixing

In re: Refrigerant Compressors Antitrust Litigation, US District Court for the Eastern District of Michigan, October 21, 2016

This large multi-district class-action originally involved claims that manufacturers of refrigerator compressors conspired to inflate the prices of the products.  After settlements and a series of rulings, all that remained were individual claims by General Electric.  GE bought some compressors directly in the US but also asserted claims with respect to finished refrigerators it imported into the US from a Mexican joint venture, MABE, in which it had a 48% interest.  MABE in turn had bought the allegedly price-inflated compressors in Mexico, from non-US defendants.

Purporting to follow the Seventh Circuit’s decision in Motorola Mobility, the Court concluded that the FTAIA’s exception for “import commerce” did not apply because the compressors had not been sold into the US by the defendants themselves (rather, the compressors were imported by GE when it imported the finished refrigerators).  The Court also concluded that GE could not satisfy the statutory requirement that the illegal conduct have a “direct, substantial, and reasonably foreseeable effect” on US commerce, and that such right “give rise” to a claim under US law.  In the case at bar, the Court concluded, the injury had been suffered by the direct purchaser of the compressors (MABE) in Mexico, and it was to Mexican law that MABE was required to look for a remedy.  The Court also found, in the alternative, that the Illinois Brick rule precluded GE—an indirect purchaser of the compressors—from bringing a claim.  GE argued that the so-called “control” exception to Illinois Brick applied, citing its large minority ownership in MABE, its related minority representation on MABE’s Board, its right to veto certain unidentified classes of decisions by MABE, and its participation in certain of MABE’s negotiations with the defendants.  The Court disagreed, finding GE’s showing insufficient to meet the exception’s requirement that there be “such functional economic or other unity between the direct purchaser and either the defendant or the indirect purchaser that there effectively has been only one sale.”

Bankruptcy

District Court finds Fraudulent Transfer Provisions of the Bankruptcy Code do not apply Extraterritorially

In re Sherwood Invs. Overseas Ltd., Inc., US District Court for the Middle District of Florida, September 30, 2016

Debtor-plaintiff sought to recover two stock settlement payments paid to the defendant as “fraudulent transfers.” The defendant moved for summary judgment, arguing that the presumption against extraterritorial application of federal statutes barred the debtor’s claims under the bankruptcy code because the conduct that gave rise to the allegedly fraudulent transfers—transfers to a Netherlands entity by a British Virgin Islands entity, where all trading and creation of the underlying securities purchased with the transfers was performed in London—occurred outside the US. The Bankruptcy Court for the Middle District of Florida agreed with the defendant and submitted to the District Court a Proposed Memorandum Opinion granting summary judgment to the defendant. The debtor objected, positing that the Bankruptcy Court had misapplied the presumption against extraterritorial application of a federal statute to conduct outside the US.

The District Court disagreed. It first observed that there is a presumption against a federal statute’s extraterritorial reach unless a clear indication of contrary intent appears in the statute itself or its legislative history. The Court also noted that neither the Supreme Court nor the Court of Appeals for the Eleventh Circuit has addressed the presumption of extraterritoriality in the context of the Bankruptcy Code’s fraudulent transfer provisions, and other courts disagree on the issue. Based on its review of the relevant provisions and their legislative history, the Court found no indication of congressional intent to apply the fraudulent transfer provisions extraterritorially.

The debtor further argued that, because the statute defines property of the estate as essentially all property in which the debtor holds an interest “wherever located,” Congress must have intended to apply the Bankruptcy Code with respect to property of the estate beyond the territorial boundaries of the US. However, the Court pointed out that the statute limits property of the estate to property recovered as a fraudulent transfer. Therefore, the debtor’s argument could only be valid if the allegedly fraudulent transfers had already been avoided and the funds already recovered.

Bankruptcy Court finds no personal jurisdiction over Polish residents in connection with trustee’s claims about interests in Polish LLCs

In re Roman Sledziejowski, US Bankruptcy Court for the Southern District of New York, October 21, 2016

A chapter 7 bankruptcy trustee sought to avoid and recover certain alleged fraudulent transfers made to defendants by a debtor, Roman Sledziejowski, and non-debtor, TWS Investment Partners LLC. The transfers related to the winding up of Sledziejowski’s equity investment in certain defendants and TWS’s loan to certain defendants. Specifically, Sledziejowski owned a 25% equity interest in two Polish limited liability companies located in Poland. His business partner—one of the moving defendants—was a Polish resident with a 40% equity interest in the Polish LLCs, and he also was the Chairman of the LLCs’ Board of Directors. Sledziejowski’s entity, TWS, provided several loans to Sledziejowski’s Polish business partner and the two Polish LLCs. While the loans were advanced in US dollars from a US bank account, the entities used those loans to engage in real estate development projects in Poland and the agreements memorializing the equity and lending relationship were governed by Polish law. The defendants moved to dismiss the claim, arguing as relevant here that the court lacked personal jurisdiction over them given their significant ties to Poland and their lack of contact with the US.

The Court began its analysis by conducting a two-part personal jurisdiction inquiry. First, it considered if the defendants had the requisite “minimum contacts” with the United States as a whole, the proper scope of inquiry under the national bankruptcy laws. Second, if such minimum contacts exist to support either specific or general personal jurisdiction, it would be required to determine whether the exercise of jurisdiction was reasonable under the circumstances and whether doing so would not “offend traditional notions of fair play and substantial justice.”

Only specific personal jurisdiction was asserted, based on a claim that the defendants had “purposefully directed” their activities at the US, and that the trustee’s claim related to such activities. The Court found that the defendants’ alleged contacts with the US were inadequate to support jurisdiction. It noted the “overwhelmingly foreign nature of the transactions at issue,” including how investments had been made in Polish real estate with Polish entities under Polish law and that the investments were sold to non-U.S. entities. Moreover, each defendant was located outside the US, the transactions involved investments outside the US, and the agreements at issue were governed by Polish law.

However, the Court found that the trustee’s request for jurisdictional discovery was appropriate because the trustee made “a sufficient start toward establishing jurisdiction” as numerous allegations—such as how Sledziejowski’s Polish business partner visited the US to advance the transactions and that some defendants sent notices to the US—suggested the possibility that jurisdiction was appropriate. Moreover, jurisdictional discovery was proper because the trustee had limited means to determine the relevant facts, many of which were exclusively within the defendants’ exclusive knowledge.

Intellectual Property – Patent

District Court Finds no US Infringement where Machinery at Issue Manufactured and Sold outside the US, Despite some US Activities

Marine Travelift, Inc. v. ASCOM SpA, US District Court for the Eastern District of Wisconsin, September 30, 2016

Marine Travelift manufactures “gantry cranes” used for moving large ships around shipyards.  It sued an Italian competitor, ASCOM, for patent infringement.  One transaction at issue was a sale by ASCOM to General Motors which was negotiated in part in Michigan and was initiated by a purchase order issued by GM in Michigan and governed by Michigan law, but which led to a delivery in Canada.

The Court stated that a “sale” by ASCOM in Canada could not infringe a US patent, but addressed the difficult question of identifying the location (or locations) of a “sale” where parts of the transaction occurred both within and without the US.  It noted that “the most salient activity” for determining the location of the sale in the case at bar was the manufacture and delivery of the product, both of which occurred outside the US.  It added that “substantial activities of the sales transactions at issue” also occurred outside the US, noting that in such case the mere presence of some negotiating and contracting activity in the US would not cause the sale to be deemed a US sale for purposes of a patent infringement claim.

District Court finds no US “Offer for Sale” from Non-US Websites that did not Target Sales to US Customers

Sound Light Animatronics Co., Ltd. v. Cloud b, Inc., US District Court for the Central District of California, November 10, 2016

Cloud b, a US corporation, develops sound- and light-emitting products for children that are intended to promote sleep.  Sound N Light (SNL), is a Hong Kong-based manufacturer with which Cloud b contracted to manufacture the products.  Cloud b came to suspect that SNL had misappropriated its designs and other intellectual property and was selling counterfeit versions of Cloud b’s products directly to customers in Asia.  As relevant here, Cloud b sued SNL for patent, trademark, and copyright infringement.

Cloud b’s patent claims were based on allegations that SNL had offered to sell products covered by Cloud b patents in the US, with the most significant allegation that the products had been offered for sale on Alibaba and other eCommerce websites available to consumers in the US.  The District Court in California observed that the location of an allegedly infringing offer of sale is to be determined based on the location proposed for “delivery and performance,” not the location where the offer is made.  It concluded that a non-US website could be the source of such a US “delivery and performance,” but required that in such case a plaintiff show that (i) the products are accessible in the US, (ii) the website accepts US currency, (iii) the website provides for US delivery, and (iv) a “significant portion” of the website’s sales were made to US customers.  Finding the claim failed to make these allegations, the Court held that no domestic violation of the Patent Act had been alleged.

[Editor’s Note:  The Sound N Light Animatronics case is also discussed in the Intellectual Property-Copyright and –Trademark sections of this report.]

Intellectual Property – Trademarks/Lanham Act

District Court finds no US Trademark Infringement where Offending Products not allegedly Sold in US

Sound N Light Animatronics Co., Ltd. v. Cloud b, Inc., US District Court for the Central District of California, November 10, 2016

Cloud b, a US corporation, develops sound- and light-emitting products for children that are intended to promote sleep.  Sound N Light (SNL), is a Hong Kong-based manufacturer with which Cloud b contracted to manufacture the products.  Cloud b came to suspect that SNL had misappropriated its designs and other intellectual property and was selling counterfeit versions of Cloud b’s products directly to customers in Asia.  As relevant here, Cloud b sued SNL for patent, trademark, and copyright infringement.

Cloud b’s trademark claims under the Lanham Act were based on allegations that SNL had offered to sell products covered by US trademarks held by Cloud b, with the most significant allegation that the products had been offered for sale on Alibaba and other eCommerce websites available to consumers in the US.  The District Court in California noted that the Lanham Act can apply extraterritorially where (i) the alleged violation has some effect on US foreign commerce, (ii) it is significant enough to cause an injury to the plaintiff, and (iii) the US interest in the dispute is not outweighed by the interests of other countries.  Specifically, the Court concluded that the plaintiff must have suffered its alleged injury in the US, and found that this requirement had not been satisfied because (i) Cloud b had not claimed that any of the subject products had actually been sold in the US, or (ii) that its alleged injury had been suffered in the US.  In the course of its discussion, the Court also rejected SNL’s argument that the Lanham Act could not apply to non-US defendants that allegedly deceived consumers outside the US, concluding that a claim could exist in such case so long as a US plaintiff suffered a financial injury in the US as a result.

[Editor’s Note:  The Sound N Light Animatronics case is also discussed in the Intellectual Property-Copyright and -Patent sections of this report.]

Intellectual Property – Copyright

District Court Finds that US Authorization of Non-US Infringement does Not State a Claim under the Copyright Act

Datacarrier S.A. v. WOCCU Services Group, Inc., US District Court for the Western District of Wisconsin, November 22, 2016

Datacarrier, an Ecuadorian software company, brought copyright infringement claims against WOCCU Services Group, a Wisconsin corporation that holds ownership interest in several Latin American and South American companies.  Datacarrier claimed that WOCCU infringed its copyright in software that processes financial transactions and manages ATM systems.  The software is used primarily in South America, and the infringement allegedly consisted of WOCCU’s authorization, from the US, of infringement in that region, and some limited direct US infringement.

The District Court observed that copyright infringement occurring entirely outside the US could not form the basis for a US infringement action.  It addressed an open question in the case law by concluding that the US authorization of non-US infringement was similarly outside the scope of the Copyright Act.  The Court considered another open question, concluding that it would treat an argument that only extraterritorial infringement had been alleged as going to the merits of the case, rather than the Court’s jurisdiction under the Copyright Act.  The Court noted, without deciding, that one of the parties believed that the procedural question mattered because allegations of US infringement could be made based on “information and belief” as opposed to direct knowledge only if the territorial question went to merits of the claim rather than jurisdiction.

District Court finds no US Copyright Infringement from Non-US Websites That did not Target Sales to US Customers

Sound N Light Animatronics Co., Ltd. v. Cloud b, Inc., US District Court for the Central District of California, November 10, 2016

Cloud b, a US corporation, develops sound- and light-emitting products for children that are intended to promote sleep.  Sound N Light (SNL), is a Hong Kong-based manufacturer with which Cloud b contracted to manufacture the products.  Cloud b came to suspect that SNL had misappropriated its designs and other intellectual property and was selling counterfeit versions of Cloud b’s products directly to customers in Asia.  As relevant here, Cloud b sued SNL for patent, trademark, and copyright infringement.

Cloud b’s copyright claims were based on allegations that SNL had offered to sell products covered by Cloud b copyrights in the US, with the most significant allegation that the products had been offered for sale on Alibaba and other eCommerce websites available to consumers in the US.  The District Court in California noted that controlling law in the Ninth Circuit required that an act of infringement occur “entirely” within the US for a violation of the Copyright Act to occur.  In concluding that no such act had been alleged, the Court referred to the analysis it conducted for the claimed violation of the Patent Act by the same conduct:  A non-US website could be the source of an infringing US sale, but in such case a claimant must show that (i) the products are accessible in the US, (ii) the website accepts US currency, (iii) the website provides for US delivery, and (iv) a “significant portion” of the website’s sales were made to US customers.  Finding no such allegations in the complaint, Cloud b’s copyright claim was dismissed.

[Editor’s Note:  The Sound N Light Animatronics case is also discussed in the Intellectual Property-Patent and –Trademark sections of this report.]

District Court finds that Streaming of Copyrighted Programs from Non-US Servers to Viewers in the US was not “Wholly Extraterritorial,” and therefore was Subject to the US Copyright Act

Spanski Enterprises, Inc., v. Telewizja Polska S.A., US District Court for the District of Columbia, December 2, 2016

As relevant here, plaintiff Spanski Enterprises owned the US copyrights to a series of television programs produced in Poland.  Defendant Telewizja Polska made those episodes available for streaming to viewers in the US, and Spanski sued for copyright infringement.  Following trial, the Court found for Spanski.  In the course of its ruling, the Court concluded that copyright infringement that “originated” outside the US but “completed” in the US was not “wholly extraterritorial,” and therefore was capable of supporting a copyright infringement claim.

International Trade/US Trade Sanctions/ Iranian Transactions and Sanctions Regulations

Magistrate Judge Concludes that US Sanctions Applied to Turkish Nationals who, from Outside the US, Arranged for US Company to make Sale of Products to Iran through Canada and Turkey

US v. Akova, US District Court for the Northern District of Georgia, October 28, 2016

A Turkish national was indicted with others for allegedly arranging to sell an epoxy glue having military uses to the Islamic Republic of Iran, via Canada and ultimately Turkey, in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transaction Regulations (ISTR).  The defendant moved to dismiss the indictment, arguing among other things that the IEEPA and the ISTR had no extraterritorial application and did not apply to a non-US national who ordered US goods for an Iranian customer. 

A magistrate judge in the District Court in Atlanta stated that congressional intent to apply both provisions to conduct outside the US had to be “clear” for them to be given extraterritorial effect, and concluded that such intent could be inferred from the language and purposes of the provisions.  In the case of the IEEPA, he found the law was intended to deal with international threats to US security.  In the case of the ISTR, he concluded that it would be “illogical” to think that the regulation would have carved out an exception for non-US persons exporting US goods to Iran.  He also concluded that the extraterritorial application of neither provision would violate principles of international criminal law, because each served the “protective principle” under which the US may lawfully protect itself from perceived threats from other countries.

Finally, the magistrate judge addressed the question whether the ISTR, by its own terms, prohibited a non-US person, located outside the US, from contracting with a US company to sell products to Iran, through a Turkish intermediary.  He concluded that the ISTR’s language did not limit violations to actions taken while a defendant was in the US.

District Court Finds US Bank Processing of Dollar-Denominated Transactions Satisfies any Requirement for a US Nexus in Prosecution for Violation of the IEEPA and the ISTR

US V. Zarrab, US District Court for the Southern District of New York, October 17, 2016

Zarrab, a Turkish/Iranian businessman, was arrested in the US and charged with violations of the IEEPA and the ISTR.  He was alleged to have owned a group of Turkish and UAE companies that engaged in a scheme to conceal evidence of transactions with Iran forbidden by the two provisions.  Characterizing the charges against him as “violating US law for agreeing with foreign persons in foreign countries to direct foreign banks to send funds transfers from foreign companies to other foreign banks for foreign companies,” he sought to dismiss the indictment as reflecting an impermissibly extraterritorial application of the IEEPA and the ISTR.

The indictment first involved a provision of law prohibiting schemes to “deprive the government of money or property or attack the integrity of the United States and its agencies.”  The Court suggested that the provision should be applied extraterritorially, requiring no US contacts at all, but concluded in any event that the processing of funds through banks in New York established any minimum US contacts necessary for a domestic transaction.

The second count of the indictment involved a provision that applied only to “exports from the United States, or by a United States person, wherever located.”  Zarrab first argued that this provision, as applied to a non-US citizen like himself, required that he have committed the violation while on US soil.  He also argued that the actions of a US bank clearing a dollar-denominated transaction abroad were not an “export.”  The Court disagreed with both arguments.  It found that such banking activities constituted the prohibited export of a “service” and thus satisfied the provision’s requirements.   

Having concluded that there was an adequate US connection between the conduct and violations alleged, the Court found no need to determine whether the IEEPA and the ISTR had extraterritorial effect.  Nonetheless, the Court reviewed the language of the two provisions and found that both reflected an effort by the US to protect itself, in connection with which the usual presumption against extraterritoriality does not apply.

Racketeer Influenced and Corrupt Organizations Act (RICO)

District Court finds “Domestic Injury” where Eastern European Plaintiffs had been Defrauded into Making Purchases of Automobiles on US-Based Websites

Akishev v. Kapustin, US District Court for the District of New Jersey, December 8, 2016

This “labyrinthine” case involved Eastern European plaintiffs who were defrauded by US-based defendants into purchasing over the Internet misrepresented or nonexistent cars for delivery to Eastern Europe.  The plaintiffs, who “never set foot in the United States,” wired money to the US defendants from foreign bank accounts.  Civil RICO claims against the defendants were based on violations of the criminal mail fraud and wire fraud statutes, and the Court ultimately found them meritorious and entered an order freezing the defendants’ assets.  A third-party who had also obtained a judgment against the defendants in a different case sought to have the freeze lifted so it could collect its damages, arguing that the Court had improperly given RICO extraterritorial effect.

After reviewing the Supreme Court’s RJR Nabisco decision (but no later authority), the Court concluded that a “domestic injury” had occurred and therefore the RICO claim was not impermissibly extraterritorial:  “The key to this case is that plaintiffs suffered their injuries the moment they clicked the computer mouse – on a United States-based website representing United States-based car dealerships – and ordered and paid for a car whose condition was materially misrepresented or did not even exist at all.”   The Court found compelling policy arguments to support its view that the question whether a US domestic injury occurred could depend on the conduct of the defendants:  “To rule this case outside [RICO’s private right of action] would allow the United States to become a haven for internet fraud despite Congress’ dual intent both to create a private cause of action under RICO and incorporate predicate acts of mail and wire fraud which extend expressly to transactions affecting foreign commerce.  * * * Plaintiffs should be afforded the same remedies available to a United States citizen who purchased a car from defendants in the exact same manner and were defrauded in the same exact scheme.”   The Court noted that a different result would attach had the plaintiffs purchased their cars from the Russian branch of an American car dealer, and “[i]mportantly” that the plaintiffs had not engaged in forum-shopping to avoid more appropriate but less favorable local remedies.

[Editor’s note:  The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

District Court Rejects Theory that “US Deprivation” of Assets Constitutes US Domestic Injury

Exeed Industries, LLC v. Younis, US District Court for the Eastern District of Michigan, November 10, 2016

Plaintiffs (Exeed) are United Arab Emirates corporations that sued a number of their former employees for allegedly running an illegal kickback scheme in the UAE.  Some of the monies allegedly paid to the defendants originated with US companies and US banks, and the defendants allegedly transferred some of their ill-gotten gains to US banks and used certain of the proceeds to buy property in California and Illinois.  The complaint alleged various civil RICO violations.

The Court initially focused on the requirement that RICO plaintiffs show a “US injury,” which the Court described as an injury “initially” suffered by the plaintiffs in the US.  The plaintiffs argued that they satisfied this requirement through a theory of “continued deprivation”—that assets to which they were entitled were unlawfully “tied up” in the US.  The Court rejected this argument because it concluded the plaintiffs’ injury was alleged “initially” to have been suffered in the UAE, and at no time did the plaintiffs even maintain a US presence.  The Court also rejected a claim of jurisdiction based on two of the alleged kickbacks having been paid through US banks:  The US link “may be related to the central scheme but it is not integral or pervasive enough to overcome the fact that the bulk of the illegal racketeering activities are alleged to have occurred abroad.”  Without a sufficient claim of injury, the RICO claim was dismissed.

[Editor’s note:  The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

District Court finds no US Injury in Allegedly Unlawful Seizure of Mexican Property Development Venture

Garcia v. Lion Mexico Consolidated, L.P., US District Court for the Western District of Texas, October 21, 2016

Plaintiff Mexican corporations and citizens (some of whom reside in the US) allege that control of a business venture organized to develop property in Mexico was acquired by the defendants through a variety of crimes, in violation of the provisions of civil RICO. The complaint was filed before the US Supreme Court decided RJR Nabisco v. European Community, which established the requirement that a private plaintiff must plead a US domestic injury in connection with any RICO claim. Following the Supreme Court’s decision, the District Court concluded that the plaintiffs' alleged injuries to “business and property” all occurred in Mexico, and it dismissed these claims. In this opinion, the Court permitted the plaintiffs to amend their complaint to allege what might later be found to be suitable US injuries: the loss of ownership interests in various US businesses.

[Editor’s note: The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

District Court Concludes that Defendants’ Emigration to US with Allegedly Stolen Funds Cannot Establish a US “Domestic Injury” to Support Private RICO Claim

Xiaomei Li v. Hanqing Sun, US District Court for the Northern District of California, December 12, 2016

In its 2016 decision in RJR Nabisco v. European Community, the Supreme Court held that a private claim under RICO must allege a US “domestic injury.”  In this case, as the District Court in California explained, the plaintiff “is a citizen of China, residing in China, who dealt with defendants in China, and who allegedly was defrauded by defendants in China.”  The only alleged connection to the US was that the defendants moved to the US carrying with them cash allegedly stolen from the plaintiff in China.  The Court held that such after-the-fact travel could not support a claim that the plaintiff had suffered an injury in the US.

[Editor’s note:  The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

District Court Concludes that Taiwanese Corporation Suffered US Domestic Injury in Connection With its US Operations

Tatung Company, Ltd. v. Shu Tze Hsu, US District Court for the Central District of California, November 14, 2016

Tatung, a Taiwanese corporation, alleged that the defendants violated RICO in the course of stripping the assets of a California company against which Tatung had won an arbitration award.  Observing that RICO claims could only be brought by private plaintiffs that had suffered a US “domestic injury,” the District Court in Los Angeles found that such an injury had been alleged, even though the plaintiff was a non-US corporation.  The Court argued that a contrary rule would afford “immunity for U.S. corporations who, acting entirely in the United States, violate civil RICO at the expense of foreign corporations doing business in this country.”  In finding that Tatung had been injured in the US, the Court noted that an arbitration judgment is “property,” but also focused on the defendants’ conduct and the fact that they had “specifically targeted their conduct at California with the aim of thwarting Tatung’s rights in California.”

The District Court’s decision specifically addresses and disagrees with the Bascuñan decision (discussed in the Summer/Fall 2016 issue of The World in US Courts), which broadly concluded that non-US plaintiffs cannot be deemed to have suffered a US “domestic injury.”

[Editor’s note:  The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

District Court Finds Alleged Loss of Sales in Angolan Auto Market Cannot Establish US Injury to Support RICO Claim

Union Commercial Services Limited v. FCA International Operations LLC, US District Court for the Eastern District of Michigan, November 10, 2016

The plaintiff, a Cayman Islands corporation owned by Angolans, had sold Fiat Chrysler vehicles in Angola since 1988.  It alleged that Fiat Chrysler entities engaged in a bribery scheme with Angolan governmental officials, the result of which was the termination of the plaintiff’s rights to distribute the vehicles.  It sued the entities on a number of theories, including civil RICO.

As relevant here, the Court first focused on the requirement that RICO plaintiffs show a “US injury,” which the Court, by analogy to the US antitrust laws, described as requiring that a defendant's conduct have intended to or produced "substantial effects" in the US.  This requirement had not been met, as the plaintiff alleged only lost sales and lost profits in the Angolan market.  The Court also rejected the plaintiff’s argument that it lost the right to buy automobiles in the US, finding that alleged injury would have been caused by an alleged breach of contract, not “by reason of” a RICO violation, as the statute requires).

[Editor’s note:  The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

Securities Law/Commodities Exchange Act (CEA)

District Court Dismisses Securities Fraud Case where Securities were not Traded on a US Exchange and the Complaint Alleged no Facts Describing where Relevant Transactions Occurred

Moreno-Gomez v. Ponce-Romay, US District Court for the District of Delaware, November 21, 2016

The plaintiffs, individuals and companies involved in the manufacture of plastic bottles for sale in Costa Rica, brought US federal securities law and other claims arising out the defendants’ allegedly fraudulent foreclosure on stock in a company that had been pledged as collateral for a loan.  The Court stated that the US securities laws had no extraterritorial effect and that a plaintiff must therefore plead a domestic purchase or sale, either through the stock in question being listed on a US stock exchange or “irrevocable liability” for the transaction having arisen in the US.  The Court observed that the plaintiffs admitted that the stock was not traded on a US exchange, and that they had not plead facts sufficient to show where any of the relevant transactions occurred.  The only reference to the US was a general averment that certain defendants “do business” in the country, and the Court found this allegation too vague to be given weight.  The complaint was dismissed and the plaintiffs were allowed to amend their complaint if facts supporting federal jurisdiction could be stated.

Personal Jurisdiction

District Court Rejects “Agency” Theory for Personal Jurisdiction

AMA Multimedia LLC v. Sagan Limited, U.S. District Court for the District of Arizona, October 6, 2016

Plaintiff AMA Multimedia, a producer of pornographic material, sued several entities associated with the website Porn.com, including Netmedia Services, Inc. and GLP 5, Inc., alleging copyright infringement.  Defendants GLP and Netmedia—a Michigan corporation and Canadian company, respectively, moved to dismiss for lack of personal jurisdiction.

AMA argued that Netmedia was subject to personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2), the “catch-all” provision that authorizes federal jurisdiction in certain cases where a non-US defendant cannot otherwise be sued in a US forum.  Among other requirements, the Court stated that application of the rule required a showing that Netmedia had “sufficient minimum contacts with the United States so that maintenance of the suit here does not offend traditional notions of fair play and substantial justice.”  AMA argued the requirement was satisfied because Porn.com's contacts with the US were substantial and could be imputed to Netmedia inasmuch as the Canadian corporation was an “alter ego” or agent of Porn.com.

The Court rejected AMA’s agency argument as a legally inadequate basis for jurisdiction.  It rejected the alter-ego argument on grounds that AMA had provided no evidence that Netmedia and Porn.com comingled funds, entered into contracts on behalf of one another, assumed liability for one another's debts, failed to keep separate corporate records, or were inadequately capitalized—all factors addressed in the alter-ego analysis. Though AMA did identify some common officers and directors between the two entities, such overlap, the Court ruled, was not sufficient in and of itself.  As a result, Porn.com's contacts with the United States were not imputed to Netmedia for purposes of personal jurisdiction.

With respect to the Michigan corporation GLP, AMA argued that an exercise of specific personal jurisdiction was appropriate because GLP had purposefully availed itself of the privilege of conducting activities in Arizona, citing GLP’s direction of employees to an annual industry tradeshow in Arizona to solicit business from Arizona-based companies, and its entry into a contract with an Arizona-based business to display advertisements on a pornographic website.  Even taking these allegations as true, however, the Court determined that AMA had not shown that its claims against GLP arose out of these contacts, which is required for the exercise of specific personal jurisdiction.

AMA Multimedia LLC v. Sagan Limited, U.S. District Court for the District of Arizona, October 6, 2016

Plaintiff AMA Multimedia, a producer of pornographic material, sued several entities associated with the website Porn.com, including Netmedia Services, Inc. and GLP 5, Inc., alleging copyright infringement.  Defendants GLP and Netmedia—a Michigan corporation and Canadian company, respectively, moved to dismiss for lack of personal jurisdiction.

AMA argued that Netmedia was subject to personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2), the “catch-all” provision that authorizes federal jurisdiction in certain cases where a non-US defendant cannot otherwise be sued in a US forum.  Among other requirements, the Court stated that application of the rule required a showing that Netmedia had “sufficient minimum contacts with the United States so that maintenance of the suit here does not offend traditional notions of fair play and substantial justice.”  AMA argued the requirement was satisfied because Porn.com's contacts with the US were substantial and could be imputed to Netmedia inasmuch as the Canadian corporation was an “alter ego” or agent of Porn.com.

The Court rejected AMA’s agency argument as a legally inadequate basis for jurisdiction.  It rejected the alter-ego argument on grounds that AMA had provided no evidence that Netmedia and Porn.com comingled funds, entered into contracts on behalf of one another, assumed liability for one another's debts, failed to keep separate corporate records, or were inadequately capitalized—all factors addressed in the alter-ego analysis. Though AMA did identify some common officers and directors between the two entities, such overlap, the Court ruled, was not sufficient in and of itself.  As a result, Porn.com's contacts with the United States were not imputed to Netmedia for purposes of personal jurisdiction.

With respect to the Michigan corporation GLP, AMA argued that an exercise of specific personal jurisdiction was appropriate because GLP had purposefully availed itself of the privilege of conducting activities in Arizona, citing GLP’s direction of employees to an annual industry tradeshow in Arizona to solicit business from Arizona-based companies, and its entry into a contract with an Arizona-based business to display advertisements on a pornographic website.  Even taking these allegations as true, however, the Court determined that AMA had not shown that its claims against GLP arose out of these contacts, which is required for the exercise of specific personal jurisdiction.

District Court Dismisses Claims against Non-Signatories to Promissory Note because Requirements of “Alter Ego” Liability not met

Centauro Liquid Opportunities Master Fund L.P. v. Bazzoni, US District Court for the Southern District of New York, September 30, 2016

Centauro Liquid Opportunities Master Fund, L.P. brought breach of contract, fraud, and fraudulent inducement claims to recover $20 million it claimed to be owed under the terms of a promissory note.  Some of the defendants had signed the note and some did not.  Claims were made against the non-signatory defendants on the theory that they were “alter egos” of the signatory defendants.  Supporting the alter-ago theory, Centauro alleged that non-signatory defendants freely transferred assets to one another and shared a “beneficial relationship,” that press releases failed to distinguish between a signatory and a non-signatory defendant, and that money owed to one non-signatory defendant was paid to another.

The District Court in New York explained that jurisdiction over the non-signatory defendants required a two-part analysis to determine whether there is a statutory basis for personal jurisdiction under the law of New York (the forum state), and whether due process concerns under the federal Constitution otherwise prohibit the assertion of jurisdiction.  If any of the defendants were found to be “alter egos” of one another, jurisdiction over one would attach to all of them.  The Court noted that as a federal court hearing non-federal claims based on the diverse citizenship of the parties, it was required to look to the law of New York, where the Court sat, to analyze the “alter ego” issue.  New York’s choice-of-law rules in turn directed application of the substantive English law of the British Virgin Islands, where the signatory defendants were located and which had the greatest interest in the litigation.  Applying English law, the Court found that Centauro had failed to allege facts sufficient to “pierce the corporate veil” and establish alter-ego liability, and therefore dismissed the non-signatory defendants form the case.

Magistrate Judge Concludes that Jurisdiction is Properly Based on Single Sale of Heavy Machinery to Customer in New York

Dingeldey v. VMI-EPE-Holland B.V., US District Court for the Western District of New York, September 28, 2016

Scott Dingeldey’s foot and leg had been trapped in a steel cord cutter machine used in the production of tires, and he sued VMI Holland, B.V., a Dutch corporation, the machine’s designer and distributor.  The accident occurred in New York, where Dingeldey was employed at the time.  

VMI moved to dismiss the claim, arguing that it lacked minimum contacts with New York sufficient for general or specific personal jurisdiction and that the assertion of jurisdiction would violate the Due Process Clause of the US Constitution.  Dingeldey responded that VMI had sufficient contacts with New York arising from its shipment of machinery to the State and its active solicitation of suppliers there for its products. 

The Magistrate Judge in New York observed that the federal court may exercise personal jurisdiction to the same extent as New York courts, which required satisfaction of State jurisdictional statutes as well as the Due Process Clause of the federal constitution.  In pertinent part, New York permits the assertion of jurisdiction where:  (i) the defendant committed a tortious act outside New York, (ii) the cause of action arose from that act, (iii) the act caused an injury in New York, (iv) the defendant had reason to expect that any defects would have direct consequences in New York State, and (v) that VMI “derived substantial revenue from international commerce.”  To conform to federal due process requirements, the defendant must have “purposely availed” itself of the privilege of conducting activities with the forum state. 

The Court found the first four State requirements satisfied through a plausible inference that VMI voluntarily sold the machine with knowledge it would be shipped to New York and used in the operations that resulted in Dingeldey’s injury.  It rejected VMI’s arguments that the statute should not apply to a single transaction and that jurisdiction under the New York law could not attach because title to the machine was transferred in the Netherlands.  The Court also found that VMI was part of a group that was an international market leader in its field, and inferred that the fifth requirement was also satisfied, even though revenues from the single transaction at issue might be small.  With respect to the federal due process requirement, the Court noted that a defendant is not deemed to have “purposefully availed” itself of the forum merely by being a manufacturer that has put its products into the stream of commerce; rather, some “targeting” of the forum jurisdiction must be shown.  This targeting was found through VMI’s manufacture of the machine for, and shipment to, Dingeldey’s New York employer.  VMI’s remaining due process concerns likewise were not deemed substantial.  The Court concluded that forcing VMI to proceed in New York was not fundamentally unfair because New York counsel had already been selected, depositions could be done by video-conference, and VMI likely had the financial capacity to litigate in New York.  Likewise, VMI’s concerns about international comity or creating international friction were rejected as unrealistic because jurisdiction over a claim of negligence was being asserted where VMI directly interacted with New York and the action arose directly from that contact. 

Accordingly, the Magistrate Judge recommended that VMI’s motion to dismiss for lack of personal jurisdiction be denied.

District Court Finds Specific Personal Jurisdiction over non-US Defendants Based on Statements in Securities Offering Documents

Firefighters’ Retirement System v. Citco Group Limited, US District Court for the Middle District of Louisiana, September 30, 2016

Three Louisiana pension funds brought claims against 23 defendants in Louisiana State court asserting multiple claims arising out of a $100 million investment loss.  After removal to federal court, eight defendants associated with a financial company, Citco, moved to dismiss the claims against them, including on the ground that they were not subject to the Court’s personal jurisdiction.

Because the matter was related to a bankruptcy proceeding under which nationwide service of process was available, the Court determined that personal jurisdiction should be based on an examination of a defendant’s contacts with the US as a whole, as opposed to its contacts just with the forum State.  Further, the Court determined that, unlike the law in many other US jurisdictions, governing precedent in the fifth Circuit did not impose a distinct requirement that an assertion of jurisdiction be “fair” or “reasonable” to be constitutional.

One of the Citco defendants was a US company, which the Court concluded necessarily established the requisite US contacts.  The remaining Citco defendants were incorporated and had their principal places of business outside the US, and for this reason the Court concluded that they were not subject to the Court’s general personal jurisdiction.  Nor did most of the other defendants have contacts with the US that supported the assertion of specific personal jurisdiction:  None had ever provided administrative, management, or accounting services to the funds at issue.  Nor was the plaintiffs’ assertion that the defendants had a common parent sufficient to overcome the presumption that they were legally independent entities.

One Citco defendant, however, was subject to the Court’s specific jurisdiction despite being organized under the laws of the Netherlands with a principal place of business in Curacao.  That defendant was prominently identified in the relevant securities offering documents, and the Court concluded that this established a “purposeful direction” of activities toward the United States.  Because the plaintiffs’ cause of action arose out of those contacts, specific personal jurisdiction attached.  Likewise, the offering documents identified another Citco defendant as an affiliate of the Dutch defendant, and the Court found this identification (combined with certain assertions of common control and integration) adequate for the assertion of jurisdiction despite the absence of direct US contacts.

In a separate opinion, the Court addressed personal jurisdiction over another defendant that was organized under the laws of the Cayman Islands with a principal place of business in Grand Cayman, Cayman Island.  This defendant served as “Administrator” of the offering documents and the Court concluded that its service was a “purposeful direction” of activities toward the US.  Because the plaintiffs’ cause of action arose out of those forum-related contacts, the Court concluded that specific personal jurisdiction existed.

District Court Finds Personal Jurisdiction over Non-Resident, Non-Signatories to Contract Based On Alter Ego Analysis

Graduate Medical Education Development, LLC v. St. George’s University, US District Court for the Southern District of Texas, October 6, 2016

Plaintiff Graduate Medical Education Development LLC is a Texas corporation in the business of helping non-US medical schools place their graduates into accredited residency programs.  The defendants are various entities associated with St. George’s University School of Medicine in Grenada.  Graduate Medical brought suit against St. George’s for allegedly violating a non-disclosure/non-circumvention agreement by using confidential information from Graduate Medical to secure investments from third parties.  Only one defendant signed the agreement, and the other defendants argued that the Court lacked personal jurisdiction over them. 

The Court found it had jurisdiction over the signatory defendant because of the defendant's execution of an agreement with a forum selection clause that directed litigation to the Court in Texas.  It also found that this provision could be imputed to the non-signatory defendants because they were merely “alter egos” of the signatory, noting that the “alter ego” test was less demanding in connection with asserting jurisdiction that in establishing liability.  Specifically, the Court found that the jurisdictional test required only a showing that the defendant challenging jurisdiction was a shell for the defendant over whom the Court clearly had jurisdiction, not a showing of an actual fraud or wrong, as would be required to impute liability.  In support of its conclusion, the Court noted that the defendants shared multiple officers and directors, that the signatory defendant was wholly owned by St. George’s University, that the daily business activities of non-signatory St. George’s entities were intertwined with those of the signatory, and that the person who signed the contract had “clear connections” to other defendants.    

The Court also noted that the assertion of jurisdiction must satisfy the requirements of the Due Process Clause of the federal constitution.  Texas’ long-arm statute extends to the limits of federal due process, and the court applied the traditional two-part due process analysis to determine whether the nonresident “purposely availed” itself of the benefits and protections of the forum state, and the exercise of due process does not offend “traditional notions of fair play and substantial justice.”  The Court also noted that in a breach of contract case, it must decide “(1) whether the defendant has minimum contacts with the forum state, (2) whether the plaintiff's cause of action arises from the contract in question, and (3) whether the exercise of personal jurisdiction is fair and reasonable.”  If the plaintiff can establish the first two prongs, the burden shifts to defendant to show that the exercise of jurisdiction would not be fair and reasonable.  The Court concluded that the signatory defendant’s entry into the non-disclosure/non-circumvention agreement containing a forum selection clause established the necessary “purposeful availment” to satisfy due process concerns.

District Court Finds Personal Jurisdiction over one Canadian Corporation on Alter Ego Theory, but no Personal Jurisdiction over Canadian Tortfeasor whose Contacts with the State did not relate to Alleged Negligence

Hume v. Farr’s Coach Lines, Ltd., U.S. District Court for the Western District of New York, November 3, 2016

Plaintiff Hume, an American citizen, brought suit on behalf of the estate of her deceased father for claims arising out of the crash in New York State between a commercial bus and tractor trailer that caused his death.  Defendant Daimler Buses North America, Ltd. (“Daimler Canada”), a Canadian corporation, was the seller of the bus involved in the crash, and defendant Tarten Equipment Limited was the Canadian shop that allegedly repaired the bus’s transmission negligently in Canada prior to the crash.  Both defendants moved to dismiss for lack of personal jurisdiction.

Daimler Canada is a wholly owned subsidiary of Daimler Buses North America, Inc. (“Daimler New York”), a New York corporation.  Daimler Canada maintained that it had no operations in New York on which to base personal jurisdiction.  Hume attempted to show that Daimler Canada’s relationship with Daimler New York was so close that the corporations were “alter egos” of one another, and should be treated as a single entity over which personal jurisdiction could be obtained.

The District Court noted that the typical two-step personal jurisdictional analysis conflates into one step where the asserted basis for jurisdiction is alter-ego:  If the court finds the non-resident corporation to be the alter ego of a resident corporation, it “necessarily finds that jurisdiction comports with federal due process.”  The Court also noted that the determination whether entities are alter egos for jurisdictional purposes “requires application of a less stringent standard than that necessary to pierce the corporate veil for purposes of liability.”

The Court applied a four-factor test focusing on: (1) whether the entities have “nearly identical ownership interests”; (2) the subsidiary’s financial dependency on the parent; (3) the degree to which the parent and subsidiary observe corporate formalities, and; (4) the parent’s control over the subsidiary’s operational policies.  With respect to Daimler Canada, the Court found that three of the four factors weighed in favor of a finding of alter ego and therefore found that it had personal jurisdiction over Daimler Canada.

With respect to Tarten, New York law allows courts to exercise jurisdiction over a defendant that “commits a tortious act without the state causing injury to person or property within the state,” so long as one of two conditions are met:  either (i) the defendant “regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in [New York],” or (ii) the defendant “expects or should reasonably expect the act to have consequences in [New York] and derives substantial revenue from interstate or international commerce.”  Further, in order to accord with federal due process requirements, New York courts have read into the second condition the requirement that the defendant “purposefully avails itself of the privilege of conducting activities within the forum state.” 

Tarten asserted that its contacts with New York were insufficient to satisfy these requirements:  That it does not perform repairs in New York, and is not authorized to do business, does not maintain offices, has no accounts, does not pay taxes, and does not lease, own, or possess property in New York.  Hume responded that Tarten is a large, international company with over a million dollars in international sales, that its employees frequently traveled into New York to service vehicles, frequently sold parts to New York customers and has over 100 customers in New York, made frequent service trips to companies located in New York, advertised its products and services in publications distributed in New York (and across the US), and occasionally took referrals for the repair of New York buses. 

The Court acknowledged that these facts showed Tarten had purposefully directed activities toward New York, but that such facts would only go to establish specific personal jurisdiction and would not be relevant because none of those activities gave rise to the claims of negligent maintenance at issue in the case, as would be required for jurisdiction to attach.

District Court Finds Personal Jurisdiction over Executive of Italian Implant Manufacturer who Signed Contract, but not over Low-Level Employee who was only Involved with Contract on Administrative Level

Precision Orthopedic Implants, Inc. v. Limacorporate S.P.A., US District Court for the Central District of California, December 9, 2016

Plaintiff Precision Orthopedic Implants is a California corporation engaged in the business of selling medical devices.  In 2012, it entered into a contract with Limacorporate S.P.A., an Italian company that manufacturers shoulder replacement implants, to sell Limacorporate’s products in Southern California.  Precision’s owner, Barry Dworkin, negotiated the terms of the contract through in-person meetings with Limacorporate’s business development director at an airport in Los Angeles and at a surgical conference in San Francisco, and via email with Limacorporate’s Italy-based business development associate, Stefano Cimatoribus.  The contract permitted Limacorporate to terminate the five-year contract early if minimum sales “guarantees” were not met.

Limacorporate terminated the contract in 2014 for “lack of sales and market penetration.”  The plaintiffs initiated arbitration and separately brought tort claims against various corporate and individual defendants.  Defendants Gabriele Lualdi, president of Limacorporate’s board of directors and president of Lima USA, its US subsidiary, and Cimatoribus moved to dismiss on personal jurisdiction grounds.

Before analyzing whether defendants had the necessary minimum contacts with California, the District Court in Los Angeles considered whether the individual defendants were protected by the “fiduciary shield” doctrine, under which individuals’ contacts with a forum in their corporate, rather than individual, capacities in some cases are ignored for purposes of determining whether personal jurisdiction over the individuals exists.   The Court found that the shield offered protection to Cimatoribus because he was neither the alter ego of Limacorporate nor the “guiding spirit” behind the alleged tortious conduct.  The Court’s finding was based on the facts that Cimatoribus was neither an officer nor director and that he was involved in the contract with Precision only from an administrative standpoint—he was not involved in direct negotiations with Dworkin or anyone else.  The Court reached a different conclusion as to Lualdi, who had signed the contract with Precision as President of Lima USA and the president of the board of directors of Limacorporate, and had ratified the alleged misrepresentations in the contract. 

Turning to the minimum contacts analysis, the Court applied the usual three-prong test for specific jurisdiction required under the Due Process Clause of the federal constitution: (i) did the defendant “purposefully avail” itself of the privilege of conducting business in the forum? (ii) does the claim relate to or arise out of forum-related activities? and (iii) is exercise of jurisdiction reasonable?  For the first prong, the court conducted a “purposeful direction analysis” typically used in tort cases and found that Lualdi’s signing of the contract was an act purposefully directed at California and indeed was intended to induce the plaintiffs to render distribution services in that State.  In addition, the contract clearly showed that the plaintiffs resided in California and suffered the “brunt of the harm” in California.  The Court rejected Lualdi’s argument that there was no purposeful direction because he was not involved in the contract negotiations and had no direct contact with Dworkin, noting that “Lualdi was involved at a much more important level: deciding whether to accept or reject the negotiated contract.”  The Court pointed out that finding otherwise could lead to “heads of corporations effectively insulat[ing] themselves from personal jurisdiction by having low-level employees negotiate contracts.”

The Court found that the second prong of the minimum contacts test was also satisfied because the causes of action stemmed from terms in a contract that would not have been effectuated but for Lualdi’s signature.  As to the third prong, the Court acknowledged that Lualdi carries the “heavy burden of litigating this case in California,” but noted that advances in communication and travel meant that the burden would not rise to the level of being a “compelling” factor, as would be required for due process principles to be implicated once minimum contacts had been shown.

District Court Finds Personal Jurisdiction over Executive of Hungarian Telecommunications Company who Participated in SEC Filings that Allegedly Aided in Bribery Scheme

SEC v. Straub, US District Court for the Southern District of New York, September 30, 2016

The SEC brought claims for violations of the Foreign Corrupt Practices Act and the securities laws against the CEO and two other executives of Magyar Telekom, a Hungarian telecommunications company.  The claims stemmed from Magyar’s alleged bribery of Macedonian government officials to obtain favorable treatment for Magyar’s Macedonian subsidiary, MakTel.  The SEC alleged that defendants were able to conceal the bribery scheme by maintaining inaccurate books and records, by submitting false management representation letters to Magyar’s outside auditor, and by submitting false securities law certifications in connection with Magyar’s SEC filings.      

As relevant here, the defendants sought summary judgment on all claims based on lack of personal jurisdiction.  The SEC brought a cross motion for partial summary judgment on the same issues that the defendants raised in their motion.  The District Court in New York concluded that the relevant question for purposes of jurisdiction was whether the defendants had “purposefully availed” themselves of the privilege of conducting activities within the forum, thus invoking the benefits and protections of its laws, such that the defendant should reasonably anticipate being sued there.  Because the securities laws permit service of process anywhere in the world, the Court noted that the relevant question was whether the defendants had minimum contacts with the US as a whole, not just with New York, where the Court sat.

The Court found that personal jurisdiction existed because the defendants purposefully availed themselves of a US securities exchange to conceal the alleged wrongdoing.  Specifically, in the course of preparing Magyar’s filings with the SEC, Magyar’s CEO had provided signed management misrepresentation letters to the outside auditor in connection with its audit of the company’s financial disclosures, which were then filed with the SEC.  The other defendants had also made representations in support of the management representation letters.  Thus, the undisputed facts showed that defendants “followed a course of conduct directed at the society or economy existing within the jurisdiction of the United States, so that the United States has the power to subject Defendants to judgment concerning that conduct.”  The Court rejected the defendants’ argument that it would be improper to find minimum contacts at this stage because the existence of the bribery scheme was disputed, noting that this argument improperly conflated proof of minimum contacts with proof of the alleged misconduct arising out of those contacts.  The court held that the SEC’s claims—that defendants engaged in a bribery scheme and concealed that schemed from the company’s investors and auditors by falsifying the company’s books and records—“clearly arose out of defendants undisputed contacts with the United States,” and the SEC was not required to prove those claims for jurisdiction to attach.

Weighing the burden on the defendants of litigating in the US against the SEC’s interest in enforcing the federal securities laws, the Court rejected the defendants’ claim that the exercise of personal jurisdiction would be constitutionally unreasonable.  It found the defendants’ contention that they encountered discovery challenges in foreign jurisdictions did not establish a burden so “compelling” that jurisdiction would be unconstitutional, as would be required for due process concerns to be implicated where “purposeful availment” had taken place.  The Court also found one defendant's advanced age and need for regular medical treatment not compelling enough of a burden to find the exercise of jurisdiction unconstitutional because any burden could be “accommodated through means short of finding jurisdiction unconstitutional.”